Segwit1X, Segwit2X or Bitcoin Cash ? Going Forward.

23 May 2017, Barry Silbert, CEO of Digital Currency Group successfully led a consortium of business leaders, to ratify the Hong Kong agreement. This Segwit2X proposal, moved the scaling issue forward. 

The first Segwit2X block will be produced around November 16 and miners will start mining on top of this block. This will inevitably kicking off the next Bitcoin hard fork round with even more drama than the last. The scramble for hashrate will be between Bitcoin Cash, Segwit2X ans Segwit1X.

Segwit2X has 95% miners support, and should be "The Bicoin" after the fork at block 494784. Since f2pool will support Segwit1X, it will at least have15% mining support. However successfully forking a Bitcoin chain is very difficult. It has to survive the Chain Death Spiral and make it to the next 2016 blocks difficulty adjustment. In all probability Segwit1X may hardfork away, if Core can't persuade miners to abandon Segwit2X. 

Core supporters know this and so, from now until 16 November they will be campaigning hard against Segwit2x. The latest release of Core 0.15 nodes does not recognise nodes running btc1. This does not achieve much because just 2 btc1 nodes will be enough for the chain to propagate. This is a "life and death" struggle for control of the main Github repository. If Segwit2X wins it will be BTC1 and if Segwit1X wins it will be Core.

Segwit (1X or 2X)  and Bitcoin Cash - The Next Battle

The final battle for the Bitcoin brand will be between Bitcoin Cash and Bitcoin Segwit. This issue will be settled over which protocol has the better scaling solution. 

Currently the BTC blockchain can handle just under 300,000 transactions a day. In the long run, demand for blockspace is infinite, held back only by transaction fees. Bitcoin Cash and Segwit have different approaches on how to find the ideal fee equilibrium. 

Bitcoin Cash approach is for an unlimited blocksize allowing for free and low fee transactions. The approach is to allow any amount of on chain scaling now while waiting for other scaling technologies to develop and mature with demand and adoption. It is important to realise that Bitcoin Cash does not exclude second layer solutions.

Segwit on the other hand, caps the blocksize and, aims to push users towards second layer solutions immediately, with the objective of molding the BTC blockchain into a settlement layer. Second layer solutions are not yet ready for deployment and even when deployed, there will be a steep learning and adoption curve to overcome. This approach is "putting the cart before the horse".

Maximising Transactions Fee Revenue

Whether a transaction is on-chain or off-chain, it is a Bitcoin transaction. If that transaction takes place off-chain, then the fee paid to the off-chain processor is fees that would have otherwise gone to the miner. The more off-chain transactions there are, the less the miners would have earned. This is where the short term and long term scenarios of the two chains diverge.

The chain that is more useful will have more transactions, and so provide miners with the most profit. This is important in a system where the coinbase reward will be decreasing over time to be replaced by fee revenue.

Maximisation of miners revenue is key. In the short term while transaction volumes are low, Segwit wins with higher fees, but long term as transaction volume grows 100X or even 1000X the fee advantage moves to Bitcoin Cash.

Summary of Points

1. "The Bitcoin" is just the chain that the industry selects. It is not "the longest chain" as BCH is the longer chain. It may not even be "the most work done". It will be "The BTC" that trades on the exchanges. 
2. If Segwit2X hardforks and wins, it will be "The Bitcoin". Core will no longer be the main Github repository. It will be btc1.
3. Most transactions are single payments. To use Lightning you must first send some Btc to the channel. This must be more expensive and complicated for simple payments eg. coffee.
4. Micro payments channels will generate huge amounts of transactions but they will not add to miners revenue.
5. Many projects left or were shelved when transaction fees escalated. How many of these projects will return to build on Bitcoin Cash is still to be seen? Yours was one. Another old favorite Satoshi Dice.
6. Maximising transaction revenue is key to winning the long game and become "The Bitcoin". On this premise Bitcoin Cash has the advantage in the long run.
7. Segwit addresses are also confusing to users and even more so for newbies. There are 4 possible Segwit address types.
8. Segwit supporters cannot understand why miners would mine BCH if it is less profitable. Current profitability calculations is based on price at time of mining. Miners may have a different time frame to base prices. If their thinking is for BCH to replace BTC then future returns would be astronomical. 

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Chain Death Spiral - Watch In Real Time - Here

Will the real Bitcoin Please Stand Up - Here

A Tale Of Two Coins - Here

Bitcoin Cash Will Regain The Mantle To Be Bitcoin - Here

Chain Death Spiral - Here

Till Death Do Us Part - The Partening

BTC : " Where should I go? What should I do?"

BCH : " Frankly my dear, I don't give a damm "

             

This big block/small block saga like the story above, started well. So what happened? And as the question begs. Where should BTC go? What can BTC do?

Sadly, for BTC there are no good outcomes. The Chain Death Spiral has set in and it can only have one ending. The BTC chain will come to a grinding halt, because the little hashing that is left, will not be enough to take it past the next difficulty adjustment, if it makes it past the one coming up.

At the very core,(pun intended) the real difference between BCH and BTC is that people embracing BCH believe in the protocol while people embracing BTC believe in the development team. Because the protocol was held hostage by the development team, this current state of affair arose. Never again should we allow, or even make it possible for any faction, not even miners, hold the protocol hostage.

We are now watching the end game play out. The value of BTC is crumbling. The parties holding the price up will soon give up completely. It is futile, When the chain in question is impossible to use, it does not have a value. Already 38.95% of the hashrate have migrated to BCH and they are never going back, despite wishful assurance that they will, arguably to chase better profits. In reality, for a large majority of miners, the bitter experience of the past have been too painful. In addition it also does not make any sense to be mining on both chains.

A miner now earns 83% less, mining on the BTC chain. In addition he wont be able to cash out for at least 2 days and by then the prices could have fallen further. No commercial miner can absorb these losses for long, no matter how strongly he supports the losing chain. His losses are uncapped, unknown and uncontrollable. Contrast this situation to that of the initial early BCH miner. He could allocate and budget for a cash burn until the project succeeds. His losses are capped, known and controllable.

BTC price may never recover. It will slide downwards with decreasing usability, The BTC chain may never be profitable to mine on again. On the other hand the price of BCH will trend upwards with increasing hashrate migration.

The End

Soon, BCH block height will surpass BCT to become the longest chain. By then it may even have the higher amount of hashing power. The BTC chain will just grind to a halt. It may not even see the next difficulty adjustment. The core team can move their agenda to Litecoin. The natural order and balance of the crypto universe will be restored. 

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Will the real Bitcoin Please Stand Up - Here

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Bitcoin Cash Will Regain The Mantle To Be Bitcoin - Here

Chain Death Spiral - Here

Chain Death Spiral - Watch It In Real Time

You can watch the progress of the Chain Death Spiral in real time. Watch the progress of the orange line. Hover over it to follow the current block time. Normal block time is 10 minutes. It is already at 13 minutes and increasing as more hashrate migrates towards the BCH chain. The graph is changed so average is 6 blocks per hour look to see BTC going towards zero.

                                              Chain Death Spiral Real Time Monitor

                                                       Check above data here  ( block time and hash rate )

This graph will show you how much hashrate have migrated to the BCH chain, also in real time. As I write it is approaching 23%

                                                BTC to BCH Hashrate migration


The BCH chain is curently 1125 blocks behind the BTC chain. Click on the link for an update.  This next graph will give you the speed at which blocks are being found. If you divide 10 minutes by the speed you get the block time. So 10/3.6 equals 2.77 minutes for BCH and 10/0.87 equals 11.49 minutes for BTC. It will take 1125*2.77/60/24 = 2.16 days to find those 1125 blocks

                                                          Block Speed Monitor

At this rate the BCH chain will be longer than the BTC chain by Wednesday. Earlier if the hashrate migration is faster.

Another graph of interest is the difficulty retargeting.

                                                         Difficulty Retargeting Monitor

At this point  BTC will retarget in 2.49 days. The next difficulty can be seen here. Even when the difficulty adjust it will not be very different from the difficulty now as it is very close to the end of the 2016 blocks readjustment period. The problem for the BTC chain is that it must now keep this difficulty for another 2016 blocks with ever lengthening block times creeping in.

The BCH chain is set to retarget in 2.8 days. This next difficulty adjustment will still be well below that of the BTC chain. By this time the BCH chain is already longer and racing ahead.

In all likelihood if the BTC chain makes it to the next difficulty adjustment, it will never see another difficulty adjustment ever again.

How you process this data and understand the economics of what gives the blockchain value will determine if you make or lose money.

The next link will give you real time price action for Bitcoin Cash. Just look at the fiat exchange pairs as the BTC pairs will become meaningless. The Korean exchanges of Bitthumb, Korbit and Coinone. make up 60% of the market and are in fiat. Outside of Korean exchanges you can follow Bitfinex, Kraken and CEXio. Unfortunately the main exchanges of Gdax, Bitstamp, BTCC and Itbit have ignored Bitcoin Cash.

Coinmarket Bitcoin Cash Prices

Conclusion and Possible Outcomes.

BTC price at the moment is unrealistic. Someone is supporting the market at great cost in order to keep the price up as a drop in price will mean that BTC is less profitable to mine leading to more miners migrating.  The action is pointless and untenable. Miners will not want to mine a coin that they percieve will lose value by the time they come to sell. The hashrate migration to BCH will not be slowing down either.

So how much is a blockchain that becomes impossible to transact worth? I am afraid the answer must be zero. So these are the possible position and outcomes.

1) Hold BTC and BCH in equal amounts. This is the position you are in if you have not sold your BCH. So Coinbase did their customers a big favor by holding on to their tokens for them.

2) Sell your BTC and buy BCH or any other coin. The time window in which you can do this will shrink very quickly.

3) Buy BCH. Again one where the window of opportunity is closing rapidly. The speed of hashrate migration is the determining factor.

What can anybody do? I am afraid nothing really as we must now let events run its' course. Appealing to miners for support is not what Bitcoin is about. Bitcoin is strong only if the pure economic forces of individual profit is the motivator. Consensus by agreements is unnatural and will not work. The invisible hand of the market must be allowed to function without intervention.

BCH and BTC price will trend lower. How low is unknown but hold. The position will settle and reverse. This period of uncertainty will end and we will learn from it. Bitcoin will continue the journey and we will sail past 5000 again.

These are my opinions and not financial advise so use your own judgement. I have just given you the tools and told you how to use and interpret the result. I hope I am wrong. I pray I am wrong. We are in this position now. If you have another scenario let us hear it. You can't suggest burying you head in the sand!

Segwit would not help much. Very few people would use it. It takes time to gain acceptance and adoption. The same with lightning.


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Will The Real Bitcoin Please Stand Up. Please Stand Up.

Over 2600 years ago, far away in the mist of time, in ancient Turkey, the Lydians and the Medes had been at war for 5 years. According to the Greek philosopher Herodotus, in the year 585 BCE, in the midst of battle, there was a solar eclipse and day was turned into night. The Lydians and the Medes took it as an omen that the gods wanted them to stop fighting and so peace ensued.

Tomorrow 21 August 2017 there will be solar eclipse over large swathe of the USA. On this day the Big Blockers and Small Blockers who have been at war for nearly 5 years decided to lay down their keyboards and peace came upon us and the community was once again united.....LOL NOT.

Back to reality

Over the last 3 days the whole of crypto and mainstream media was ablaze with the news of the nearly five fold increase in BCH price to over 1000 USD, sweeping aside all predictions of its' early demise. Of course to those of us who are of the opinion that the BCH fork was a fork back to the original bitcoin, we are not at all surprised. It was rather expected and with the anticipation of more to come, until the Cashening.

Fitting in the pieces

Looking back, we learn that 55% of the trading volume over the last 24 hours amounting to 1.7 Billion USD, yes billion with a "B" was transacted on 3 South Korean exchanges. To put this in context, the total worldwide 24 hour trading volume for BTC was only 2.6 billion. More important was that the 1.7 billion was in fiat. Not BTC. It is clear now that BCH explosive price rise was a result of heavy buying from South Korea with "new money".

So why only South Korea and for BCH? There was no buying pressure from China or Japan. China played a huge part in BTC trade volume until the Chinese government clamp down on the exchanges. The slack was later picked up by Japan when the Japanese Government legalise Bitcoin on 1 April this year. Then on 24 July South Korea made bitcoin payments legal.

South Korea the world's 12 largest GDP and a East Asian Tiger economy made its' mark in the crypto world with a huge play in BCH. South Korea the home of Samsung with 17% share of the world mobile phone market is now officially in the crypto business, and they selected BCH as their vehicle.

This is significant and mark the difference in philosophy and approach by these 3 East Asian economic competitors. China chose to develop their own national digital currency. Japan decided to go with BTC and South Korea have chosen BCH. Who will be right?

Coming back to the 1.7 billion USD 24 hour trade in BCH. This amount of money cannot come from just ordinary citizens. Large institutions and perhaps even banks are involved. This play is not over. Not by a long shot. Expect to see higher and quicker price rises in BCH, especially when the rest of the world catches on to what is really happening.

Will the real Bitcoin please stand up.

Yesterday for the first time it became more profitable to mine BCH than BTC. Today at block 479808 BCH had its' first standard difficulty adjustment and is now only 7% the mining difficulty of BTC. These are watershed moments and marks the point at which miners will choose to mine the more profitable BCH chain, and initiating the dreaded Chain Death Spiral for BTC. So when will BCH replace BTC as the real Bitcoin?

In a Twitter post, Gavin Andresen said that he will refer to BCH as Bitcoin if it has the longest chain and his view is echoed throughout the community. Over the last 24 hours 139 BTC blocks and 263 BCH blocks were found respectively. This is a difference of 124 blocks. As of now the BCH chain is 1452 blocks behind  BTC. This means that in as little as 11 days and most probably earlier the BCH chain will overtake the BTC chain to become the longer chain. Will we then call BCH Bitcoin?

Another twist. Ryan Charles in his latest Youtube post suggested that BCH should just be called CASH. Wow. What a great idea. A totally left field proposition and yet on reflection its' simplicity is indeed powerful. BCH is exactly that - CASH - Spending Money.

So now we come back to the question of  between China, Japan and South Korea, which country chose correctly. My money is on South Korea. What's yours?



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A tale of Two Coins

In 2005 Michael Burry discovered that the mortgage back securities that banks were selling to investors had included in them mortgages that were delinquent. This he recognised to be a fatal flaw and as history would record, he successfully engineered a long term bet against those securities in what we know today as "The Big Short".

That there were delinquent mortgages in a package of securities was not unknown. The idea was that returns from the good mortgages easily covered the small losses from the bad. The problem however was that there was an insatiable appetite for these products and investors were willing to accept ever higher level of risky mortgages in their basket, to the point where these sub-prime mortgages were "manufactured" to supply the demand. Investors drew comfort from the widely held but faulty notion that house prices will keep rising and the property market will never collapse. They were wrong, and we are still living the result of that folly, with nearly 10 years of recession/depression.

How is this relevant to Bitcoin?

In a previous article I pointed out that as a result of Bitcoin Cash, miners now have the option to mine BTC or BCH. Bitcoin without the Emergency Difficulty Adjuster (EDA) is vulnerable to a massive drop in hashing power which would lengthen the time between blocks to hours such as happen to BCH at the time of the fork. This is a disaster that BTC would never recover from because it does not have the protection of EDA.

The Bitcoin mainstream refused to acknowledge this, postulating that it would never happen and that miners will never do that. But that is not the point. The question is not if miners will or won't but if they can or could, and if it is the latter, then there is a non zero existential threat to the universally held notion of the indestructibility of Bitcoin. Investors who hold bitcoins as a store of value can wake up one morning to a black swan event that renders the value of their nest egg to zero. Projects and start-ups dependent on BTC holding value will collapse and fail.

To make matters worse BTC is also limited to 1MB blocks. This means that if only a fraction of mining power is lost to the bitcoin network, block time lengthens and the mempool bloats. Without the benefit of big blocks to clear the backlog, transaction fees increases to the point where the bitcoin blockchain becomes unusable, except to those willing to pay usurious fees.

Long block and block maturity time will drive miners to mine the BCH chain which is already more profitable. This causes a feedback loop which will inevitably lead to the dreaded Chain Death Spiral, and the collapse of the Bitcoin blockchain.

To argue that the BTC blockchain is more profitable to mine if higher fee rewards are taken into account, is oxymoronic to the extreme. It is the argument of a bias and disingenuous supporter or a greater fool. The fees are high precisely because blocks are small. Pinning their hopes on Segwit and/or 2MB is hopelessly inadequate and unrealistic for a technology that is on the cusp of explosive growth and mainstream adoption.

The time for action is now.

We must now confront the reality that Bitcoin has not 1 but 2 fatal flaws. EDA and 1MB blocks. The effects of the 1MB block is already evident with the mempool consistently over 45MB and a blockchain that is becoming increasingly unusable. In all probability, the Bitcoin blockchain is kept alive only by the good graces of miners honoring their increasingly untenable NYA agreement.

Why has there been no discussions of these fundamentally important and critical issues? The answer must be fear and greed. Fear that any such discussions will lead to the fall in the bitcoin price or a move to Bitcoin Cash. However, censoring and avoiding discussions purely out of greed is downright fraudulent. We have already seen what happens as a result of greed replacing reason in the sub-prime disaster. Not to address this "elephant in the room" may lead to a total loss of confidence by the public and ridicule by governments and banks, eager and waiting to regulate and control.

A new market quoted pair for Bitcoin Cash.

The market capitalisation of Bitcoin Cash is in excess of 10 Billion and rising. Many investors are now aware of the problems inherent in Bitcoin and have opted to move or hedge their position with Bicoin Cash. Herein lies a problem. The value of Bitcoin Cash is pegged to Bitcoin. What happens if the price of Bitcoin goes to zero? We need a contingency plan now. Bitcoin Cash should be traded and reported as currency pairs side by side against BTC. We must demand and insist this of the exchanges. This way if BTC fails the process of transition is seamless.

Contrary to popular misconception, Bitcoin Cash is the real bitcoin, and it was not a new fork, but a fork back to the original. In just two weeks it has taken the number three spot in market capitalisation and will soon replace Ethereum at number two. In the process it has eroded the value of all alt coins that have gained prominence because they were allowed to exploit their specific niches by eroding use and value from Bitcoin. The community is sending a message. Loud and Clear.

It is high time to put BCH back where it belongs.

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